Inflation reverses upward trend

Inflation reverses upward trend

Inflation bucked the upward trend of past three months, dropping 6 basis points to 7.44 percent month-on- month in February on the back of falling non-food prices.
Non-food inflation, which was the main cause for the rise in inflation in recent months, dropped 16 basis points to 5.37 percent last month, according to data from the Bangladesh Bureau of Statistics.
Zahid Hussain, lead economist of World Bank's Dhaka office, said January's cautious monetary policy statement helped in containing inflationary expectations despite wage increases in public and private sectors.
However, BBS Director General Golam Mostafa Kamal told reporters at his office yesterday that inflation dropped due to the stable political
climate.
If the situation persists in the coming months, inflation may remain within the government's budgetary target of seven percent throughout fiscal 2013-14.
“While the slight reduction in inflation is welcome, we need to see a few more months of decline before we can say whether inflation really is on a downward trend,” Hassan Zaman, chief economist of Bangladesh Bank, said.
Food inflation, which was on a descent in the last few months, went up 3 basis points from the previous month to 8.84 percent in February, most definitely on the back of rice price increases, according to Hussain.
The national average retail price of rice in December 2013 was 24 percent higher than in the previous year, due to disruptions in the transport system caused by political instability. Even though supplies increased later, the price rise was not reversed.
However, BBS Director Abul Kalam Azad told reporters that the prices of lentil, flour, milk, egg also shot up in February, which caused the increase in food inflation.
Meanwhile at a meeting of the fiscal coordination council last month, after taking the recent situation into consideration, it was decided to keep the inflation target at 7 percent in the revised budget.
However, the central bank thinks keeping inflation within this target would be challenging and hence in the latest MPS they have advised the government to keep the bank borrowing within the budgetary target.
“Limiting the government borrowing from the banking sector is important for achieving inflation target and providing space for banks to lend to the private sector,” said the central bank.